Promise and Potential: Downstream sector set to witness growth

Downstream sector set to witness growth

India is the third-largest energy consumer in the world, after China and the US, with a sha­re of around 5.8 per cent of the world’s primary energy consumption. The country’s en­ergy requirement is fulfilled primarily by cru­de oil, natural gas, coal and renewable energy. The oil and gas sector plays a predominant role in this energy mix.

In 2019-20, India’s domestic crude oil production stood at 32.1 million metric tonnes (mmt), which declined to 30.3 mmt in 2020-21. In co­mparison, consumption was about 194.3 mmt in 2020-21, a decrease of around 9 per cent from 214.1 mmt in 2019-20. The dependence on oil imports also saw a decline, from 85 per cent in 2019-20 to 84.4 per cent in 2020-21. How­ever, over the past five years, the dependence on oil imports has increased alongside an inc­re­ase in consumption.

Domestic production of natural gas witnessed a decline of around 8 per cent from 31.2 bcm in 2019-20 to 28.7 bcm in 2020-21. The domestic natural gas demand declined by over 5 per cent in 2020-21, plummeting to the lowest in three years, as Covid-linked lockdo­-wns hit the demand from small industries and the transport sector. Gas consumption fell to 60.6 bcm during 2020-21. Gas imports also declined by 3 per cent to 33 bcm in 2020-21. However, the share of im­ports in domestic consumption rose to 54 per cent in 2020-21 from 53 per cent in 2019-20.

There were many reasons for the shortfall in oil and gas production, including a natural dec­line in matured fields, unplanned shutdowns and operational losses for the few producing wells due to the pandemic.

India’s oil and gas potential

India is heavily dependent on energy imports, particularly of crude oil and natural gas. These get converted into everyday fuels such as petrol, diesel, kerosene and city gas. The government, in collaboration with various central ministries, state governments and other stakeholders, is working towards reducing import dependency.

To reduce the import of oil in the country, the government has taken multiple steps such as refinery process improvements, various policies under the production-sharing contract re­gime such as the discovered small field policy and the hydrocarbon exploration and licensing policy, and the setting up of a national data repository. It has also provided functional freedom to national oil companies and encouraged wider private sector participation by streamlining approval processes, including an electronic single-window mechanism. The focus of the government has shifted from revenue generation to production maximisation in the oil sector.

There is a huge hydrocarbon potential in the north-eastern region of the country waiting to be tapped. Of the estimated 7,600 million metric tonnes of oil equivalent (mmtoe) in Northeast India, only 2,000 mmtoe has been discovered. The government has approved several oil and gas projects worth Rs 1 trillion in the region. This includes infrastructure au­g­me­n­ta­tion,  such as the expansion of one of the ol­d­est operating refineries in the world, the Dig­boi refinery in Assam.

In December 2021, the government inaugurated the Bina-Panki multiproduct pipeline project. It extends from the Bina refinery in Ma­dhya Pradesh to Panki in Kanpur, Uttar Pra­desh. It is a 356 km long pipeline with a capacity of around 3.45 million metric tonnes per annum. It will provide safe and efficient evacuation of products from the Bina refinery and also improve the availability of products in eastern Uttar Pradesh, central Uttar Pradesh, northern Bihar, and southern Uttarakhand. This pipe­line is safe and environment-friendly and can transport large quantities of petroleum pro­ducts economically and reliably, reducing the carbon footprint by removing the need for tank wagon and tank lorry movements.

India and the US have agreed to expand their energy collaboration by focusing on em­erging fuels. The US-India strategic clean en­ergy partnership (SECP) has been launched in accordance with the USA-India Climate and Cle­an Energy Agenda 2030 Partnership. The SCEP organises inter-governmental engagement across five pillars of cooperation – power and energy efficiency; responsible oil and gas; renewable energy; sustainable growth and emerging fuels.

Future projections

The oil and gas sector is among the eight core industries in India. It plays a vital role in influencing decision-making for all the other important sections of the economy. Oil and gas demand in the country is projected to grow in the near future. This is due to the expected inc­rease in Indian energy demand from 753.7 mtoe in 2017 to 1,516 mtoe by 2035.

The crude oil consumption in the country is expected to increase at a compound annual growth rate (CAGR) of 3.6 per cent to 500 million tonnes (mt) by 2040. With regard to natural gas, consumption is expected to inc­rea­se at a CAGR of 4.18 per cent to 143.08 million tonnes by 2040.

One of the major challenges for the country remains the huge dependence on imports for oil and gas. During 2019-20, India imported over 85 per cent of oil and 53 per cent of gas to meet domestic demands. The country needs to focus on augmenting the exploration of hydrocarbons to enhance domestic production of oil and gas, expanding the use of re­newable energy, and investing in research and development to evolve new technologies to add­ress the country’s needs and reduce imports.

In order to raise the domestic output and re­duce the reliance on imports, the government is set to spend around Rs 7.5 trillion to build oil and gas infrastructure over the next five years. The country is also expected to more than double the area under exploration for oil and gas production to 0.5 million square km by 2025 and 1 million square km by 2030.

A significant emphasis is being laid on inc­reasing the share of city gas distribution networks by having them cover 470 districts. The government aims to increase the share of natural gas in the primary energy mix from 6.3 per cent in 2020 to 15 per cent by 2030.